Wednesday, January 7, 2015

David Goldman has just about had it. At the risk of sounding
like a curmudgeon—as though there is something wrong with that—Goldman essays,
yet again, to enlighten us as to the facts about China.

As you know, American journalists and pundits have
consistently misunderestimated China. They have, in other words, misunderstood
the basis for Chinese success, and underestimated its staying power.

Why is China succeeding?

Goldman answers:

China
is succeeding despite many problems (including authoritarian administration)
because the Chinese are working very hard. The most important New York Times dispatch about
China was the magazine item last week that reported on the cram
schools that offer rural students a shot at admission to top
universities. China now produces as many PhDs as the U.S., and twice as many
STEM PhDs. Western commentators tend to dismiss Chinese as uncreative
imitators, and there is some truth to the charge. China’s merciless meritocracy
makes university admission entirely dependent on examination scores. It is a
transparent, rules-based system that cannot be gamed. One can bribe a public
official in China by covertly paying the college tuition for a child at an
overseas university, but not at a university in China itself. Any transparent,
rules-based system requires inflexible rules; inevitably, a great deal of
effort is devoted to memorization. That is the secret of China’s social
cohesion: not only have living standards soared, but even the rural kids
portrayed in the Timescram
school story have a chance to grab the brass ring. You can’t fund a new building
at Peking University and get your kid accepted: it’s the raw exam score, and
nothing else.

It's hard to believe that China has done so well without affirmative action... without even a nod to diversity. Who would have thunk it?

In America we want every child to become a creative free
spirit. Goldman replies that an economy does not need very many creative types.
It needs people who can get things done:

No
matter: memorization also requires work. An economy doesn’t need a lot of
creative people. It needs a few creative people and a great many people who are
simply competent.

Ironically, for all our emphasis on creativity we Americans have lost
some of our capacity for innovation.

In Goldman’s words:

If we
want to compete more effectively against China, we should look toward our
capacity to innovate. But we aren’t innovating. Half the CapEx among tech
companies in the S&P 500 is conducted by just five firms (Apple, Microsoft,
IBM, Micron, HP). Take out the monopolies and the cupboard looks pretty bare.
The rest of the tech world is investing less (in current dollars) than in 1999.
We no longer have a tech sector: we have consumer electronics monopolies run by
patent trolls whose job is to crush innovation.

According to Goldman, China’s detractors—indulging their
wishful thinking—also misrepresent reality:

I’m
also tired of hearing about the imminent collapse of the Chinese financial
system. China had the best-performing stock market in the world last year (see
above chart), and the big Chinese banks outperformed the overall market index.

The next time you hear that China is about to decline or
even implode, keep these sobering facts in mind.

2 comments:

Goldman: I’m also tired of hearing about the imminent collapse of the Chinese financial system. China had the best-performing stock market in the world last year (see above chart), and the big Chinese banks outperformed the overall market index.

This seems the absolute worst rationalization I've heard in a while. As they say "past performance doesn't guarantee future results."

I work for an engineering company and Canadians were the dominant foreigners for the last decade, but the Chinese have recently taken over that title. None of them are interested in returning to China. Apparently our "police state" is has more freedom than theirs.

It's fun to have a rival to poopoo our failings. We had Japan in the 1980's and 1990's but their lost decade is now into its third. Japan had robots, how could they have failed?!

I'm not betting on our future with our 330 million's affluence over 1350 million ambitious Chinese. I do expect we're going to bankrupt ourselves sooner than later, but I have no idea what comes out the other side. Subsistence farming might be in more of our futures than we think.